Hough & Ors v Hardcastle & Ors

A petition under section 459 of the Companies Act 1985 may be struck out where the pleaded conduct has no real prospect of justifying relief under section 461. The court may consider delay, participation in or acquiescence to the conduct, and the discretionary nature of the remedy. Conduct concerning one company may also constitute conduct of another company’s affairs where there is an appropriate control relationship. Common ownership by individuals is insufficient where neither company controls the other. Payments made under an agreed licensing arrangement do not become unfairly prejudicial merely because they benefit shareholders of the licensing company.

The petitioners were shareholders in Grandactual Limited, which operated a restaurant. They alleged that the respondents had conducted the Company’s affairs unfairly by issuing additional Class C shares, maintaining an allegedly improper capital structure in an Isle of Man licensing company, redeeming shares in that company, and transferring Company funds to it as licensing fees.

The respondents applied under CPR 3.4 and 24.2 to strike out or dismiss the petition on the basis that it disclosed no claim with a real prospect of success. The central issues were whether the allegations concerned the affairs of Grandactual and whether any pleaded conduct could justify relief under section 461.

1. Application granted. The petition was struck out or dismissed because none of the pleaded complaints had a real prospect of resulting in relief under section 461 of the Companies Act 1985.
2. The complaints concerning the issue of additional Class C shares were brought many years after the events. The petitioners had participated in, or been informed about, the relevant conduct and had not pursued relief for approximately nine years. Although section 459 was not subject to a limitation period, relief under section 461 remained discretionary. The court would not allow burdensome proceedings to continue in those circumstances.
3. The allegations concerning the capital structure and redemption of shares in Injebreck Limited did not concern the affairs of Grandactual. The authorities, including Nicholas v Soundcraft Electronics Limited [1993] BCLC 360 and Re Citybranch Group Limited [2004] 4 All ER 735, showed that conduct of one company’s affairs may in some circumstances also be conduct of another’s affairs where one company controls, or is controlled by, the other. That principle did not apply where the companies were controlled separately by the same individuals and neither company controlled the other.
4. The allegation concerning payments to Injebreck did relate to Grandactual’s affairs, but there was no evidence that the payments exceeded the contractual licence fees. Payment of fees due under the licensing agreement could not, on the pleaded evidence, amount to unfairly prejudicial conduct.

First-instance decision. No earlier appellate decision is stated in the judgment.